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Tunisia Country Risk Report Q2 2016

  • February 2016
  • -
  • Business Monitor International
  • -
  • 33 pages

Core Views

The Tunisian coalition government is unlikely to unravel as a resultof the breakdown of Nidaa Tounes – the main political party – but willcontinue to face daunting socio-economic and political challengesover 2016. Popular pressure and opposition from vested interestswill continue to slow the pace of reform, particularly in the run-up tolocal elections scheduled for the end of the year.All three growth drivers of the Tunisian economy – consumption,investment and exports – will remain mired with problems, includingthe lingering effects of last year's terrorist attacks on the tourismsector, the unresolved weaknesses of the banking system and lowpublic investment.

We project only a tepid recovery to 2.4% realgrowth this year, from estimated growth of 0.7% for 2015.Budgetary inflexibility, weak economic growth and growing socialunrest will limit the ability of the government of Prime Minister HabibEssid to narrow the fiscal deficit.The fragile state of Tunisia's banking sector will remain a dragon the economy over the coming years despite the passage of arecapitalisation plan in August 2015. The issue will continue to bepolitically controversial, and the need for any further bailouts wouldundermine popular support for the government.While job creation will gradually pick up over the coming years,progress in reducing Tunisia's large unemployment rate will remainslow. The government will struggle to deal with increases in theworking age population as well as growing female participation inthe workforce.

Table Of Contents

Tunisia Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Continued Weakness In All Growth Engines8
All three growth drivers of the Tunisian economy - consumption, investment and exports - will remain mired with problems, including
the lingering effects of last year's terrorist attacks on the tourism sector, the unresolved weaknesses of the banking system and low
public investment We project only a tepid recovery this year, forecasting real growth of 24%, from an estimated 07% in 2015
GDP By Expenditure Outlook 10
TABLE: COMPONENTS OF GDP (% OF TOTAL)10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: PRIVATE CONSUMPTION FORECASTS11
TABLE: FIXED INVESTMENT FORECASTS11
TABLE: NET EXPORTS FORECASTS11
Fiscal Policy And Public Debt Outlook 12
Fiscal Reforms Constrained By Political Realities12
Budgetary inflexibility, weak economic growth and growing social unrest will limit the ability of the government of Prime Minister Habib
Essid to narrow the fiscal deficit
Structural Fiscal Position 13
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES (2014)13
Monetary Policy 14
Dovish Shift For 201614
Tunisia's interest rate trajectory will be dovish over 2016 We forecast an interest rate cut of at least 25 basis points over 2016, given
weakening inflationary pressure and the continued weakness of economic conditions and credit growth
Monetary Policy Framework 15
Chapter 2: 10-Year Forecast 17
The Tunisian Economy To 2025 17
Human Capital To Support Long-Term Growth17
The Tunisian economy will bounce back over the coming decade and will be an outperformer in North Africa Tunisia's relatively
favourable business environment, along with high human capital development, will attract significant levels of foreign investment, which
will help to drive private consumption growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS17
TABLE: MENA - SELECT BUSINESS ENVIRONMENT FACTORS 18
Chapter 3: Political Outlook 21
SWOT Analysis 21
BMI Political Risk Index 21
Domestic Politics 22
Turbulent 2016 For Essid Government22
The Tunisian coalition government is unlikely to unravel as a result of the breakdown of Nidaa Tounes - the main political party - but will
continue to confront daunting socio-economic and political challenges over 2016 Popular pressure and opposition from vested interests
will continue to slow the pace of reform, particularly in the run-up to local elections scheduled for the end of the year
TABLE: POLITICAL OVERVIEW22
Long-Term Political Outlook 24
Political Transition To Be Successful24
We are optimistic regarding Tunisia's ability to evolve into a stable democracy, and the political transition will be the most successful
among the countries that experienced the Arab Spring An untested institutional framework, job creation and radical Islamist militancy
will be the major challenges to stability over the coming decade
Chapter 4: Operational Risk 27
SWOT Analysis 27
Operational Risk Index 27
Chapter 5: BMI Global Macro Outlook 29
Global Macro Outlook 29
Downside Risks Gather Momentum29
TABLE: GLOBAL ASSUMPTIONS29
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %30
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 30
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %31
TABLE: MACROECONOMIC DATA and FORECASTS33

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